Why Billionaires Are Bad for Democracy
November 03, 2014
By Linda McQuaig & Neil Brooks
Today is Election Day and, whatever our political affiliation, we can be sure that big money players with deep pockets will play a large part in the outcome. Which is exactly how they want it. Between 1980 and 2008, the incomes of the bottom 90 percent of Americans grew by a meager 1 percent compared to a whopping 403 percent for the top .01 percent. In an excerpt adapted from their 2012 book, Billionaires’ Ball: Gluttony and Hubris in an Age of Epic Inequality, Linda McQuaig and Neil Brooks explore the real origins of the Tea Party’s “grassroots” movement, and the secret world of the Koch brothers’ conservative money machine fueling America’s escalating inequality.
Barely a month after Barack Obama had been sworn in as the forty-fourth U.S. president, riding a wave of immense popular support with his “Yes, we can” rallying cry echoing around the country and the world, a voice seemed to appear from nowhere saying, “No, actually you can’t.” Ostensibly, it came first from Rick Santelli, a relatively obscure investment manager-turned-commentator on CNBC, who denounced Obama’s plans to help struggling American homeowners as “promoting bad behavior.” In a wide-ranging rant from the floor of the Chicago Mercantile Exchange on February 19, 2009, Santelli said, “We’re thinking of having a Chicago Tea Party in July. All you capitalists that want to show up to Lake Michigan, I’m gonna start organizing.” Within hours, a protest movement had swung into action on the Internet, talk radio, and cable TV, and rallies were scheduled across the country for the following week.
To Mark Ames and Yasha Levine, journalists who had written for an expatriate newspaper based in Moscow, there was something fishy about the whole affair. “As veteran Russia reporters, both of us spent years watching the Kremlin use fake grassroots movements to influence and control the political landscape. To us, the uncanny speed and direction the movement took and the players involved in promoting it had a strangely forced quality to it.” Ames and Levine noted that, only hours after Santelli’s rant, a previously inactive website called ChicagoTeaParty.com, which had been registered six months earlier by a right-wing activist, sprung to life, declaring itself the official home of the Chicago Tea Party. Whether or not Santelli was part of deliberate plan to launch the Tea Party—he denies that he was—Ames and Levine quickly pointed out what other journalists have later confirmed: that the apparently spontaneous outburst of disaffected Americans was greatly helped along by an organized and sophisticated campaign ultimately funded by two of America’s richest men, Charles and David Koch. In many ways, the emergence of the Tea Party as a potent force in American politics can be seen as the culmination of almost four decades of behind-the-scenes effort on the part of the billionaire brothers.
The political views of the Koch brothers have always been on the extreme right, nurtured by their father, Fred Koch, a cofounder of the ultra-right-wing John Birch Society. Since inheriting his massive privately held oil fortune in the late 1960s, the brothers have been pouring untold millions of dollars into promoting libertarian causes. The probing of Ames and Levine, as well as a comprehensive, investigative piece by Jane Mayer in the New Yorker in August 2010, has shown that the brothers established a vast network of ultra-conservative political organizations, advocacy groups, publications, and think tanks. Included in this network is the high-profile Cato Institute, which has aggressively pushed for an end to Social Security, and the Mercatus Center, located at George Washington University, which has been a leading advocate of environmental deregulation and inaction on climate change. (Its scholars have reassured the public that “if a slight warming does occur, historical evidence suggests it is likely to be beneficial, occurring at night, in the winter and at the poles.”)
The brothers have mostly stayed out of politics directly (apart from David Koch’s stint as the vice presidential candidate for the Libertarian Party in 1980, positioned to the right of Ronald Reagan). Perhaps the Kochs sensed how politically toxic a couple of billionaires could be to a movement whose central aim has been slashing taxes on the rich and dismantling programs, like Social Security, that keep millions of Americans out of poverty.
Hence they’ve masked their involvement. But their fingerprints are all over groups that have played an essential role in fostering the Tea Party’s rise, particularly Americans for Prosperity, which David Koch started in 2004. In a rare speech to a celebratory AFP gathering in the Washington area in 2009, Koch confirmed his involvement: “Days like today bring to reality the vision of our board of directors when we started this organization five years ago.” Still, with Koch and his kingly lifestyle remaining mostly out of sight, AFP has been able to present Koch-funded political events as populist gatherings of ordinary citizens trying to fight vested interests. Advertisements for a 2010 summit called Texas Defending the American Dream, for instance, proclaimed, “Today, the voices of average Americans are being drowned out by lobbyists and special interests”—without mentioning that the event was being sponsored by two of America’s wealthiest men, whose lobbying and special interest pleading had become so extensive it was dubbed the Kochtopus decades earlier.
In fact, the Kochs were really just one—although a leading one—of the ultra-rich U.S. families that in the 1970s turned their attention and directed their wealth to the task of pushing American politics sharply to the right and putting in place policies that more clearly favored their own interests.
The impact on the Republican Party has been the most profound, with conservative money ensuring that moderates in the style of Dwight Eisenhower—or even George H. W. Bush—are increasingly blocked from winning their party’s nominations. Two well-financed conservative pressure groups have been instrumental in this. The Club for Growth has proved highly effective in weeding out, early on, any Republicans who dare to deviate from a tax-cuts-for-the-rich agenda. Founding president Stephen Moore (who worked at both the Heritage Foundation and Cato Institute) noted that when he approached wealthy donors for money to use against such candidates in primary contests “they start wetting their pants.” Similarly, Americans for Tax Reform, headed by the immensely influential lobbyist Grover Norquist, has helped impose a rigid antitax agenda on Washington by coercing Republicans into signing the organization’s pledge to oppose all efforts to increase tax rates on business and the high-income crowd. Although some moderate Republicans originally resisted, increasingly they’ve succumbed. By September 2011, 236 congressmen and 41 senators had signed the pledge, giving antitax automatons a majority in the House and sufficient votes to prevent legislation from coming up for a vote in the Senate.
The impact of conservative money on the Democratic Party has also been immense. With increasingly expensive political campaigns in the TV age, business gained a huge advantage with cash-hungry Democratic candidates, particularly after labor’s economic clout and financial contributions diminished. As labor faded, the well-financed voices of business grew louder and more persistent, aggressive, and ubiquitous. Democrats became the new scared-e-cats, retreating in lockstep as the conservative juggernaut advanced, putting up scant resistance as the goalposts were moved ever farther to the right. The Democrats largely abandoned support for important labor policies, allowing the minimum wage to languish, supporting trade deals that encouraged privatization and favored corporate interests, and even emerging as the leading proponents of financial deregulation in the 1990s. This brought in huge campaign support from the financial industry, realigning the party with Wall Street, particularly under the influence of powerful Democratic senators Charles Schumer and Joseph Lieberman.
The Democrats have held out somewhat on the tax issue. They’ve mostly resisted signing the tax pledge, and have recently supported Obama’s calls for higher taxes on the rich, including his “Buffett rule” plan to make those earning more than a million dollars a year pay tax rates as high as the middle class. But these measures—while sharply resisted by the Right—still represent a huge retreat from the meaningfully progressive tax policies championed by the Democratic Party all the way back to the end of the nineteenth century, during the Depression and the early postwar years. The enormous decline in the taxation of the rich over the past thirty years could not have happened without the almost complete capitulation of the Democratic Party.
This broad retreat from progressive causes was painfully evident as early as 1978. Despite Democratic control of Congress and the White House, a highly organized and well-financed campaign by business, led by the Business Roundtable, helped orchestrate the defeat of an important piece of labor legislation in the Senate after a nineteen-day filibuster—a devastating defeat that seemed to confirm labor’s waning influence, even with its Democratic allies. This was followed by an even more surprising Democratic retreat on the tax front. While President Jimmy Carter had campaigned on promises to make the tax system more progressive, a Democratic tax bill that started out with provisions for higher capital gains taxes was quickly gutted after a major lobbying effort by business. In the end, the Democratic-controlled Congress passed a bill that did exactly the opposite—cut the capital gains tax almost in half, slicing the rate from 48 percent to 28 percent. The Democrats had shown a willingness to play ball with the new moneyed interests in town, presiding over the first major victories of the conservative political revolution before Ronald Reagan even set foot in the White House.
Linda McQuaig has developed a reputation for taking on the establishment. Author of seven Canadian best sellers and winner of a National Newspaper Award, she has been a national reporter for the Globe and Mail, a senior writer for Maclean’s magazine, and a political columnist for the Toronto Star.
Author of three books, Neil Brooks is director of the Graduate Program in Taxation at Osgoode Hall Law School in Toronto. He has participated in building projects relating to income tax in Lithuania (through the Harvard Institute for International Development), Vietnam (Swedish International Development Agency), Japan (Asian Development Bank), China (AUSAid), and Mongolia (AUSAid).